NPR: The Giant Pool of Money

I'm a sucker for episodes of This American Life. No matter what the subject, the program always seems to lure me in with its combination of sentimental narration and poignant documentary. Episode 355 isn't merely entertaining, it manages to educate and encapsulate this whole economic/mortgage crisis. I recommend it to anyone interested in how we got here.

Here are the program notes:

355: The Giant Pool of Money (click here to be directed to the site, then click on the full episode link on the left.)

A special program about the housing crisis produced in a special collaboration with NPR news. We explain it all to you. What does the housing crisis have to do with the turmoil on Wall street? Why did banks make half-million dollar loans to people without jobs or income? And why is everyone talking so much about the 1930s? It all comes back to the Giant Pool of Money.

A shorter companion version of this story appeared on NPR's "All Things Considered."

Prologue.

Ira talks with NPR business and economics correspondent about two gatherings he attended. One at the Ritz Carlton and one at a community college in Brooklyn. The first was an awards dinner for finance professionals who created the mortgage based financial instruments that nearly brought down the global economic system. The other was a non-profit conference for people facing foreclosure. Ira explains that today's show lays out how the finance guys and the people facing foreclosure are connected by a chain of middlemen, and that together, they all brought about the current housing and credit crisis. (4 minutes)

Act One.

This American Life producer Alex Blumberg teams up with NPR's Adam Davidson for the entire hour to tell the story - the surprisingly entertaining story - of how the US got itself into a housing crisis. They talk to people who were actually working in the housing, banking, finance and mortgage industries, about what they thought during the boom times, and why the bust happened. And they explain that a lot of it has to do with the giant global pool of money. (31 minutes)

Song: "Hard Times," The Sex-o-Rama Soundtrack


Act Two.

Alex and Adam's story continues. (23 minutes)

Song: "Time Machine," Grand Funk Railroad

Twisted Statistics

Say you were standing with one foot in the oven and one foot in an ice bucket. According to the percentage people, you should be perfectly comfortable.
~Bobby Bragan, 1963

Here’s the real problem with year-over-year statistics:

The follow is quote is from the comments on Which California did you mean?!

Year-over-year appreciation in your markets (by city) was as follows:
Albany -8.6% ~David G from Zillow.com

Here are the actual unscreened statistics taken from the Multiple Listing System:

Market Summary Month of April 2007
Price Range		No. of Listings	Dollar Volume	Average Price	Median Price	DOM
Detached
$550,000 - $554,999		1	$550,000	$550,000	$550,000	13
$565,000 - $569,999		1	$565,000	$565,000	$565,000	29
$580,000 - $584,999		1	$580,000	$580,000	$580,000	12
$595,000 - $599,999		2	$1,195,000	$597,500	$597,500	17
$605,000 - $609,999		1	$605,000	$605,000	$605,000	21
$645,000 - $649,999		1	$645,000	$645,000	$645,000	13
$725,000 - $729,999		1	$727,000	$727,000	$727,000	12
$795,000 - $799,999		1	$795,000	$795,000	$795,000	15
$875,000 - $879,999		1	$875,000	$875,000	$875,000	14
$1,005,000 - $1,009,999		1	$1,006,000	$1,006,000	$1,006,000	8
Sub Total		11	$7,543,000	$685,727	$605,000	16
Condo
$285,000 - $289,999		1	$285,000	$285,000	$285,000	156
$430,000 - $434,999		1	$430,000	$430,000	$430,000	56
$450,000 - $454,999		1	$450,000	$450,000	$450,000	3
Sub Total		3	$1,165,000	$388,333	$430,000	72
Townhouse
$485,000 - $489,999		1	$485,000	$485,000	$485,000	9
Sub Total		1	$485,000	$485,000	$485,000	9
		15	$9,193,000	$612,867	$596,000	26

Market Summary Month of April 2008
Price Range	No. of Listings	Dollar Volume	Average Price	Median Price	DOM
Detached
$350,000 - $354,999	1	$350,000	$350,000	$350,000	98
$610,000 - $614,999	1	$610,000	$610,000	$610,000	14
$625,000 - $629,999	1	$625,000	$625,000	$625,000	18
$680,000 - $684,999	1	$681,500	$681,500	$681,500	8
$765,000 - $769,999	1	$767,500	$767,500	$767,500	17
Sub Total	5	$3,034,000	$606,800	$625,000	31
Condo
$340,000 - $344,999	1	$342,000	$342,000	$342,000	7
$345,000 - $349,999	1	$348,000	$348,000	$348,000	31
$385,000 - $389,999	1	$385,000	$385,000	$385,000	55
Sub Total	3	$1,075,000	$358,333	$348,000	31
	8	$4,109,000	$513,625	$497,500	31

1. Because of low inventory, many statistics rely on a small handful of closed transactions. Last year the City recorded 15 closings in the month of April compared with only eight in 2008. One of the five single family homes (three were condos) used to derive this years statistics was a freeway impacted fixer on Polk street which sold for an artificial low of $350,000. This home alone has a dramatic impact on the statistics representing 20% of the remaining single family homes recorded.
2. Many of the sales forced by the mortgage melt-down are in lower price ranges where sub-prime financing played a key role in the purchase. 40% of this years sales in April were condominiums verses 26% last year.
3. Conversely, many of the sellers with significant equity in desirable neighborhoods are choosing to stay put. The resulting inventory has shifted towards lower priced houses which in turn affects the statistics. The property with the highest value last year ($1,006,000 for 1749 sq ft of living space) was at 1031 ORDWAY STREET, which is Albany's top location. This year the highest value ($767,500 for 1372 sq ft of living space) was on 535 STANNAGE AVE just two blocks above San Pablo Avenue a good two tiers below Ordway in neighborhood desirability.

The year-over-year sales jumped to different locations within Albany, and to smaller properties-- while presenting fewer properties to test the averages. What does -8.6% mean if the statistics are chasing a moving target?
Tip for Sellers: The transactions we see daily do not behave according to the stats. We see the specifics change dramatically neighborhood by neighborhood and street by street. If you want to know what your home is worth in all of this, have your real estate agent prepare a Comparative Market Analysis, which will pull the most current sold prices for homes nearest to your property. Compare apples only to other apples. Random percentages don’t cut it anymore; you need to see for yourself where the statistics are coming from.

Tip for Investors: The twisted statistics do create an opportunity for investors. Since institutional lenders are not here in the trenches, they must rely on statistics, regardless of how faulty they are. What's more, in the current climate they are happy to act conservatively based on the numbers. Short sales and foreclosures (where they exist) do present an opportunity for investors as it is easy to negotiate and justify a low price to someone who is judging our market by the statistics.

Which California did you mean?!

by Arlene Baxter

Yesterday Zillow reported that 130 out of the160 metropolitan areas they have been surveying now have median home prices below last year's. Of the 10 metropolitan areas with the biggest declines, five were in California.
As I read this newly released information I was once again reminded how crucial it is to be precise in defining what area you refer to when speaking about value trends. We start with: "California one of three states with largest losses in property values." Then we go to the supposedly local information: "San Francisco values down 13.5% from last year". But read on: San Francisco, Oakland and Fremont define an area! Even forgetting that you're commingling counties, San Francisco merged with Fremont?! I fail to comprehend the value to anyone of such merged data.
We all know California is not one housing market, but many completely different markets, representing all manner of market behaviours. San Francisco alone is not one housing market, but many diverse and conflicting markets. Some neighborhoods are very active, some in desperate straits. I primarily represent the markets of Berkeley, Albany, Oakland and Alameda, in Alameda County, plus El Cerrito and Kensington in Contra Costa County. Just within my own geographic areas there are numerous micro-markets. Last week in a desirable Berkeley neighborhood with little on the market, a house was listed in the low $900K range. The house was charming, but needed updating to most major systems. It received 10 offers, with the successful offer being more than $350K over list! That was noteworthy, but not unique in this market area. In Berkeley and Rockridge in Oakland multiple offers are common (just not having ten of them!) We are seeing fewer and fewer contingencies in offers. We see pre-offer inspections by buyers, and once again we have pre-emptive offers. Right here, right now, there certainly are more qualified buyers than desirable listings.
Meanwhile, buyers continue to read that it's their market, and are shocked, and sometimes resentful, when I need to educate them to the true and fast nature of most of our local micro-markets. But the local news is the only news that really matters!

So I continue to blame it on the wisteria! See my April 20th post below, including an all-wisteria, all-the-time slide show! While most is now past its prime, today's view of the entrance to Gourmet Mecca (otherwise known as Chez Panisse!) was even more enticing draped in wonderful white, fragrant blossoms.
The depressed, bottomed-out market of the Zillow news is truly not the world of Gourmet Ghetto. I splurged on Ciao Bella sorbet while I photographed scenes of the Epicurious Garden. Lychee and Passion Fruit put me in a mood to appreciate the sensual pleasures of our little stretch of paradise all the more. And then when I walked into the small branch Post Office and was served immediately, I knew for sure that I was in heaven!